A transaction of finance whereby goods are

bought & sold as per the terms & conditions

specified below is known as Hire Purchase
Finance
1.Payment of periodic installments
2.Immediate possession of goods by the buyer
3.Ownership of goods remaining with the vendor
until the payment of the last installment
4.Treatment of each installment as hire charge
till the payment of the installment

According to Hire Purchase Act

1972, the term hire purchase is defined
as
An agreement under which goods
are let on hire & under which the hirer
has an option to purchase them in
accordance with the terms of the
agreement.

Under hire purchase system, the buyer takes possession of

goods immediately and agrees to pay the total hire purchase
price in instalment.
Each instalment is treated as hire charges.
The ownership of the goods passes from buyer to seller on the
payment of the instalment.
In case the buyer makes any default in the payment of any
instalment the seller has right to repossess the goods from the
buyer and forfeit the amount already received treating it as hire
charge.
The hirer has the right to terminate the agreement any time
before the property passes. That is, he has the option to return
the goods in which case he need not pay instalments falling due
thereafter. However, he cannot recover the sums already paid as
such sums legally represent hire charge on the goods in
question.

A
system
of
consumer
financing,
whereby
the
payment of the purchase price
is deferred, to be pain in
reasonable
instalments
is
known as Instalment Buying
System

An ordinary sale of goods with payment system

The buyer obtains ownership & possession on
payment of the first instalment.
No possibility of the article sold being returned to
the seller, since sale is complete immediately
after the execution of the agreement
Seller has no right to recover possession of the
goods if the buyer commits a defaults if the
payment of outstanding instalments & there is no
question of forfeiture of paid instalments against
default. How ever he is entitled to recover his
dues with the help of court.

Feature

Hire Purchase

Installment Buying

Actual Sale

It happens only at the

payment of the last
installment

It happens when the first

installment payment is
done

Legal
Ownership

Until the last installment is

made the ownership is with
the Hire Purchase company

The buyer is the rightful

ownership on the first
installment payment

Right to sell

A hire-purchaser cannot sell

the article until the last hire
charge is paid

The buyer can sell the

article at any time

Legal
Protection

The seller gets max

protection by the law

The buyer gets

maximum protection of
the law

Default

The buyer can lose both the

article & the entire amount
paid if there is a default

No risk of loss to buyer

even on default

Sellers

The seller can get back

ownership & possession if

The seller cannot

repossess but has

Feature
Down
Payment

Ownership

Leasing Finance

Hire Purchase

No down payment is required

Down payment is required

to the extent of 20% to
25%

Ownership of the property

Ownership of the property lies is transferred to the hirer
with the finance company
of the payment of the last
installment

Depreciation

Lessor, & not the lessee, is

entitled to claim depreciation
tax shield

The hirer(owner) is
entitled to claim
depreciation tax shield

Capitalization

Capitalization of the asset is

done in the books of lessor,
the leasing co

Capitalization of the asset

is done in the books of the
hirer

Payments

The entire lease payments

are eligible for tax
computation in the books of
the lessee

Only the hire-interest is

eligible for tax
computation in the books
of the hirer

Feature

Leasing Finance

Hire Purchase

Magnitude

Leasing is used as a source of

finance usually for acquiring
high cost assets such as
machinery, ships, airplanes.

HP is used as a source of
finance. Usually low cost
assets such as
automobiles, office
equipments

Nature of
asset

An asset given on lease by a

leasing company is considered
as the fixed asset of the lessor

The hire vendor normally

shows the asset let under
HP either as stock in
trade or as receivables

Receipts

All receipts from the lessee is

taken into the lessors profit &
loss A/C

Only the interest portion

is taken into the hirevendors P&L A/C